Segun Ajayi-Kadir is the Director-General of Manufacturers Association of Nigeria (MAN). In this interview with TAIWO HASSAN, he speaks on the impacts of multiple regulatory agencies at the port, recent government policies and how they have affected local manufacturers and the economy in general. Excerpts:
What is your assessment of Nigeria’s economy at the beginning of this year and will you say the country achieved its economic targets at the end of the first quarter?
The overall goal of government in 2017 was to move the economy out of recession. The journey to accomplishing that was turbulent, but at the end of the day, the economy was restored to the path of positive growth as Nigeria exited recession with a growth rate of 0.72 per cent in the second quarter reaching 1.4 per cent in third quarter and 1.92 per cent in the fourth quarter of 2017.
Fortunately, the policies that moved the economy out of recession in 2017 are still in operation since the beginning of 2018. Most importantly is the Central Bank of Nigeria (CBN)’s intervention in the forex market since February 2017, which has narrowed the premium between Inter Bank Rate and the Bureau De Change (BDCs) and made forex more easily accessible in the country. Other policies include the Ease-of-Doing-Business reforms and the Executive Orders of government and better monetary management that have been driving inflation down. Inflation rate has continuously been declining since the first quarter of 2017 beginning with 17.92 per cent in Q1 2017, 16.58 per cent in Q2, 15.91 per cent in Q3 and 15.37 per cent 2017.
The trends present a good sign that the real value of household income may be recovering, which is an incentive to increasing the current level of production in the country.
Overall, I believe that if the current policies of government are fine-tuned and sustained with proper implementation and better macroeconomic management, the bench-mark growth rate of 3.5 per cent and inflation targets of 12.4 per cent may not be impossible in 2018.
As a manufacturer, do you think the 2018 budget will address the capital projects and infrastructure development, which are critical to the advancement of improved industrial production?
The core challenge of the industrial sector in Nigeria is the poor infrastructure situation, which constraints productivity and makes Nigerian manufactured product less competitive. Therefore, any policy or move that will improve the poor state of infrastructure in the country will certainly heighten industrial production in Nigeria.
Consequently, the 2018 Appropriation Bill as presented by Mr. President appears to be a progressive one and therefore commendable, particularly with sustained focus on infrastructure development.
The capital expenditure of N2.652 trillion or 30.8 per cent of total expenditure budget is impressive and gives hope for more capital projects and infrastructure development, which are critical to advancing industrial production in the country.
Key projects earmarked for execution in 2018 include the N9.8 billion Mambila hydro power project, the N12 billion transmission lines and substations, N35.41 billion National Housing Programme, N10 billion Second Niger Bridge and N300 billion constructions and rehabilitation of strategic roads are good pointer that the Appropriation Bill supports industrial production.
However, it is noteworthy that to accomplish these projects and achieve the core objectives of the Bill, it is important that sound project implementation and management must be conscientiously maintained.
MAN has been advocating an enabling environment for its members, but it is alarming that multiple agencies of government are posing challenges to importers/manufacturers.
Would you say these have adversely affected the country’s manufacturing sector?
There is no doubt that the presence of so many regulatory agencies at the Nigerian ports has added immensely to the manufacturing import bills, leading to poor competitiveness of Nigerian manufactured products. This is more so as each agency comes with its charges and levies on our members who import raw materials.
However, the Enabling Business Environment Secretariat (EBES), the implementation arm of the Presidential Enabling Business Environment Council (PEBEC) has been working towards reducing the number of agencies operating in the country’s ports. EBES now has an approved national action plan to be implemented in three priority areas, two of which are entry and exit of goods.
This will not only improve the ranking of Nigeria on Ease-of-Doing-Business, but will also reduce the operating cost of manufacturers and improve the competitiveness of products manufactured in the country. We therefore hope for a proper implementation of this national action plan.
Currently, unemployment rate is at an all-time high and many employers in the private sector are finding it difficult to pay their workers’ salaries as and when due, what is the implication of this to the country’s economic growth?
Traditional economics attach significant role to aggregate consumption for national income propagation. This means that consumption is critical to the growth of any economy including Nigeria’s. For the manufacturing sector, low consumption as it is now affects the sector. It is important to note that once consumption is dampened, it triggers off a chain reaction, leading to high inventory of unsold finished products and low capacity utilisation in the sector. This also has negative impact on the financial sector of the economy.
The ultimate implication would be de-employment in every sector, thereby re-enforcing the already high employment situation in the country.
Unfortunately, the poor consumption situation in the country is as a result of the explosive consumer price index, leading to high inflation, which stood at 15.13 per cent in January 2018.
In order to address the challenges, it is important that government entrenches better macroeconomic management with fiscal discipline. So, exchange rate, interest rate, growth in aggregate prices and government capital expenditure must be soundly managed by government.
The NEXIM N550 billion Export Expansion Grant promised by CBN is yet to be made available to exporters. Do you think the release of this fund will boost the export sector of the Nigerian economy?
A major challenge to the small and medium-scale enterprises (SMEs) has been the dearth and high cost of borrowing. As the commercial bank lending rate remains at double digit, it is very difficult for this category of business to access loans.
For instance, a survey conducted shows that manufacturers were charged an average interest rate of 23 per cent in 2017. overnment being aware of this challenge created various lending windows with single digit interest rate in the past such as N220 billion Micro, Small and Medium Enterprises Development Fund (MSMEDF) and the N300 billion Real Sector Support Facility (RSSF).
The performance of these windows remains unclear as the conditionality was stringent for businesses. Interestingly, any move to lend to SMEs, especially for export development at a single digit interest rate, is a welcome development provided the conditionality for such credit is attainable.
Consequently, the CBN and the Nigeria Export-Import Bank (NEXIM) N550 billion export stimulation funds is indeed an important development that would spur non-oil export if properly implemented.
Yes, the interest rate for facility is nine per cent, but other terms and conditions for the credit should be liberal so that these small businesses would be able to access the credit.
The forex market has maintained relative tranquillity since the CBN commenced its policy intervention in February 2017. The interbank rate has been stable at N305.76/US$ in Q1 2017; 305.76/US$ in Q2; N305.81 in Q3 and N305.21/US$ in Q4 2016.
In addition, the naira has been appreciating in the BDC segment of the forex market from N479.49/US$ in Q1 2017; N379.05/US$ in Q2; N365.52/US$ in Q3; and N362.49 in Q4 2017. Premium between the Interbank and BDC rates has also been narrowing down from 54.6 per cent in Q1 2017 to 19.3 per cent in Q2; 19.5 per cent in Q3; and 18.5 per cent in Q4 2017. The forex market is therefore stable enough to support the N550 billion export stimulation fund if properly implemented.
Would you say that the expected pressure earmarked in the 2018 budget proposal, which intends to generate a total sum of N1.3 trillion from CIT, VAT and Customs and Excise duties could bring about harsh operating environment in the country?
The Manufacturers Association of Nigeria commends the 2018 Appropriation Bill following the significant share of capital expenditure, which stood at 30.8 per cent of total budget and focused emphasis on infrastructure development. However, we are concerned with the implication of the N1.328 trillion projected revenue from CIT, VAT, and Customs &Excise Duties in the Bill.
Already, the current CIT of 30 per cent does not encourage business expansion, especially as the operating environment is still challenging. Moreover, being that manufacturers are at the epicenter of these payments, MAN feels that if the N1.328 trillion is extracted from manufacturers, it will further burden the manufacturing sector, especially at this time that the sector is still hanging precariously at brink of recession.
Already, there is a move by the Federal Government to re-introduce Excise Duties on previously de-excised Nigerian manufactured products and increase the duties of those currently being excised.
However, MAN posits that the Government should jettison such move at this time considering the fact that the economy is still recuperating from recession even though the manufacturing sector is yet to fully exit recession.
With the forthcoming elections, there are fears that Nigeria may lose more on Foreign Direct Investments (FDI) front as investment tightens further due to the prevailing economic circumstances of the country and the looming uncertainty that usually characterises electioneering activities. What are your views on these?
Past observations have shown that during electioneering periods, the Government tends to be less focused in comparison to normal period. However, I feel that Nigeria has made a strong leap of democracy by transiting from one civilian government to another and from one political party to another notwithstanding the peculiar challenges of the country. This is a good presage for stability in the Nigerian political landscape. I believe that the international community especially the investors are aware of these and other policies of the government, particularly the current reforms, which aim at improving the Ease-Of-Doing-business (EODB) in the country. By-and-large, investment would relatively be sustained in the country in the period.
MAN has always advocated that the current reforms in critical sectors such as power, agriculture, solid minerals and oil and gas should be sustained. Do you think that the Executive Orders of the Federal Government signed in May last year have improved the country’s business environment?
The importance of a well-developed power, agriculture, solid minerals and Oil & Gas to national and industrial growths is unquestionable. While constant power supply to the industry is critical, agriculture, solid minerals and Oil & gas provide high inter-industry linkages.
They supply raw-materials to other sectors including the manufacturing sector and utilize the products of these sectors as their own input. Therefore, it is imperative that the Government should continue to increase investments in the sector and at the same time create policies that will encourage strong private sector investments into them.
As regards the Executive Orders, MAN commends the Federal Government for the three Executive Orders on Promotion of Transparency and Efficiency in the Business Environment; Support for local contents in public procurement by the Federal Government; and Budget Transparency and timely submission. I believe that the executive order is very important to improving Ease-of-Doing-Business in the country.
The re-focused attention of the Government to promotion of patronage of made in Nigeria products and the 40 per cent participation rate of SMEs to all public procurement would certainly benefit the economy and the small businesses if properly implemented.
Since the government signed the Executive Orders and the accompanying policies that are being implemented, the operating environment has been relatively improving. According to World Bank Group, Nigeria improved in the EODB ranking to 130th in 2018 from 145th recorded in 2017.
Specifically, starting businesses, dealing with construction permits, registration of property, getting credit and paying taxes have improved according to the World Bank group.
On MAN’s Made-in-Nigeria advocacy, would you say the procurement policy for the MDAs, which prescribe that patronage of Made-in-Nigeria products should be prioritised in the government expenditure has been effectively implemented? If not, what do you think the Government needs to do?
Our advocacy on patronage of Made-in-Nigeria products has been successful. Yes, the Executive Order 003 of the Federal Government was directly informed by our recommendations. Specifically, the 40 per cent SME participation rate in all public procurement was MAN’s proposition that was born of our rigorous researches and studies.
It is important to note that advocacy remains in continuum until the objective is achieved. We are still strongly engaging the Government in monitoring and evaluation of procedures for Executive 003 to ensure proper implementation.
The Apapa ports gridlock has been a nightmare for the organised private sector (OPS). Could you give us an insight into how this has affected your members’ importation business?
The gridlock on the roads leading to both the Wharf and Tin Can ports in Lagos State has been of concern to MAN. The gridlock on those roads has huge cost implication to our member in terms of time wasted and huge amount expended in clearing their imports due to unnecessary accumulation of demurrage.
At the moment, it takes eight weeks to get a container out of the ports. In the midst of the delay, manufacturers incur unnecessary high demurrage and cost of transportation from the ports to factories as truck owners charge our members as long as the trucks are trapped in the gridlock.
This has incremental effect on cost of production in the manufacturing sector, which worsens the poor competitiveness of goods made in the country.
We hope that the current Government’s port reforms and Ease-of-Doing-Business initiative, particularly on Trade Across Boarders would also take care of the this challenge.
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